Shenzhen Connect offers Chinese stocks - will the world buy?

People in Shanghai use a pedestrian bridge earlier this year that has an electronic display showing figures for the Shanghai, top, and Shenzhen, bottom, stock exchanges. ﻿

Photo: STR

HONG KONG - Global investors in two weeks will get direct access for the first time to the stock market in the Chinese city of Shenzhen, giving them a chance to bet on a tech-heavy clutch of private companies on an exchange sometimes called China's Nasdaq.

But many investors will be skeptical, and the tale of Baofeng Group explains why.

A largely unknown tech firm that designs online video players, Baofeng conducted a modest debut on the Shenzhen exchange in March 2015. Over the next three months, its stock rose 4,200 percent.

The company went public at the height of China's share market frenzy, as speculative investment in stocks became the national hobby. Vast fortunes were minted - Baofeng's chief executive became a billionaire almost overnight.

Then, just as quickly, investors' hopes were dashed. Chinese stocks imploded in June of that year. The government's attempt to stem the losses with trading suspensions, bans on selling and a campaign of state-directed buying only added to the concerns of private investors.

Many fled the market and still remain on the sidelines more than a year later. As a result, shares of Baofeng - while up nearly 10 times from the day they began trading - are still down more than half from their year-ago peak.

The long-awaited connection between the Shenzhen market and the rest of the world will be open Dec. 5. The timing was announced Friday by the stock market operator in the nearby city of Hong Kong that will serve as the way point. The move is partly intended to give Baofeng, the rest of the Shenzhen market and Chinese stocks overall a shot in the arm.

Called the Shenzhen-Hong Kong Stock Connect, the venture opens a small door in China's regulatory wall restricting money from moving across its borders. The plan, similar to one in Shanghai, allows investors in Hong Kong - a Chinese city long open to foreign investors - to buy and sell shares in Shenzhen, and vice versa.

The move is the latest test of China's readiness to allow a more open financial system. Despite China's status as the world's second-biggest economy after the United States, the country's financial markets are still comparatively immature.

The leadership in Beijing worries that easing its grip too fast could lead to destabilizing flows of funds in and out of the country. Programs like the Stock Connect are aimed at opening the door wider - but also at retaining state control over the pace of liberalization.

Analysts welcomed the move but questioned whether it would lure much new investment. The main Shanghai share index has entered a bull market, having rallied more than 20 percent from January, but trading volumes remain a shadow of what they were during the boom.

China's economic prospects have lost some of their luster, as growth has eased to its slowest pace in a quarter-century.